Offshore Shelf Companies are of Little Value

I’m frequently asked about the use of offshore shelf companies in international business. If you are debating between forming a new offshore corporation or buying an offshore shelf company, read this article before spending the extra cash.

Some online incorporators market offshore shelf companies as the greatest invention since the numbered bank account. I think they’ve lost most of their value over the last few years as banks require more information on their customers (beneficial owners) and bearer shares have been eliminated.

Bottom Line: An offshore shelf corporation has no tax or banking benefits. It can be helpful in marketing because it makes it appears as if you’ve been around for a few years… not a startup for fly by night operator.

Since an offshore shelf company can be used in marketing without backdating any documents, or doing anything improper, go for it. If someone suggests falsifying records, run the other way.

Maybe I’m getting ahead of myself. Let’s start from the beginning.

What the heck is a shelf company? It is a corporation formed months or years before that has been sitting on the incorporator’s shelf unused. Because it has no history of operation, no bank account, and no creditors, there’s no risk in purchasing a shelf company.

The legitimate benefits of an offshore shelf corporation are:

1. 1. The company is ready to use off the shelf. You don’t need to wait for the company to be formed, the name to be approved, or for the directors to be assigned. Forming a new offshore company in Panama takes 1 to 2 weeks.

1. You can market the name and age of the shelf company. For example, your letterhead and marketing materials can refer to “International Marketing Services (Panama), S.A., Established 2006,” if you bought a corporation by that name formed in Panama in October of 2006.

But, buyer be ware. The abuses of shelf companies are well documented. Many purchase these entities and then ask the director to sign back dated documents. While you can find some less scrupulous directors who are willing to sign for a few extra dollars, such a practice is obviously improper.

And, let’s say you go through the trouble of buying a shelf company and faking up the documents for whatever reason. Now what? If you are audited by the U.S. IRS it will appear as if you’ve owned an unreported offshore company for years. They’ll hit you with all kinds of penalties. And what’s your defense? “errrr, I didn’t own the company for these years. I was just perpetrating a little fraud on my bank… nothing to concern the IRS.” Good luck with that.

Back in the days of Bearer share companies, these offshore shelf companies had some additional benefits. Whomever held the shares owned the company. No need to fake up documents… it was already in bearer form.

Unfortunately, the days of the bearer share company are long gone (more on this in a future post), as I believe are most of the benefits of the offshore shelf company.

Because of the nature of the industry, it is difficult to find a shelf company older than about 14 months. Here’s how these shelf companies typically come about:

Offshore companies are usually formed by the incorporator on behalf of a particular client. The client does not pay the fee or changes his mind, so the entity sits on the shelf to be sold to someone else. After 12 months, the annual dues must be paid, which the incorporator is not willing to do. Around the 14th to 16th month, the company is closed by the government registrar.

In fact, this happens quite often. At the time of this writing, I have 3 shelf companies sitting around collecting dust. If someone needs an offshore company immediately, great. Maybe they’ve traveled to Panama and want to open a bank account while they’re here. They don’t want to hang around the hotel for a week or two for a new formation, so they buy a shelf company.

I hope this post on offshore shelf companies has been helpful. For more information on services please contact me at info@premieroffshore.com for a confidential consultation. I will be happy to form your offshore company, open bank and brokerage accounts, and create your asset protection structure.